Consumers Keep Economy Afloat
Friday July 13, 1:00 pm Eastern Time
By Barbara Hagenbaugh
<<WASHINGTON (Reuters) - U.S. retail sales rose for the second straight month in June and consumer confidence strengthened in July, according to reports on Friday that suggested consumers may keep the economy out of a recession.
In another positive report, the government said prices at the wholesale level fell in June at the sharpest rate in more than two years. The data suggested inflation was under wraps, giving the Federal Reserve leeway to cut interest rates further if necessary to keep the U.S. economic expansion on track.
Sales at U.S. retail stores rose 0.2 percent to a seasonally adjusted $292.9 billion in June as consumers took advantage of aggressive incentives to purchase cars and heavy discounting at struggling retailers across the nation.
The gain in June followed a 0.4 percent rise in May.
In another report, the University of Michigan said consumer confidence rose in July as Americans became more optimistic about their financial futures despite continuing layoffs.
With consumer spending accounting for two-thirds of U.S. economic activity, analysts said the data suggested consumers may prevent a U.S. recession by hitting the shopping mall.
``The consumer is still with us, maybe not as rapid as we like, but still a significant contributor and may be the only factor keeping us out of negative territory,'' said Anthony Chan, chief economist at Banc One Investment Advisors in Columbus, Ohio.
Investors largely shrugged off the data. Stock prices were slightly higher midday as the market caught its breath after the previous day's vigorous rally and waited for an avalanche of corporate scorecards to hit Wall Street.
SHOP 'TIL YOU DROP
The gain in retail sales in June was led by a boost in vehicle purchases. Sales of new cars and trucks climbed 1.5 percent to $72.88 billion following a 0.2 percent gain in May, the Commerce Department said.
Excluding new-car sales, which account for one-quarter of monthly retail business, overall retail sales actually fell 0.2 percent in June -- the first such decline in three months -- following a 0.4 percent gain in May.
Economists, however, said that number was likely negative due to lower gasoline prices and huge discounting at stores as retailers tried to cling on to customers in a sluggish economy. Retail sales are measured in value, not volume.
And analysts also noted that smoothing out monthly fluctuations, retail sales from April to June were up 6.1 percent at an annual rate, much higher than the 5.2 percent pace measured from January to March.
``This is just further evidence that the economy is leveling off,'' American Express Financial Advisors chief economist Dan Laufenberg said. ``The economy has stopped deteriorating but there isn't a clear sign that it is rebounding dramatically.''
The University of Michigan said its preliminary consumer sentiment index rose to 93.7 in July from 92.6 in June, extending a gradual rebound from a floor of 90.6 in February, its lowest level in nearly five years.
The report's current conditions index, a gauge of views of present financial feelings, dipped to 100.2 in July from 101.6 in June. But the expectations index, a gauge of attitudes about the coming year, rose to 89.5 from 86.9 in June.
Economists said the optimism about the future reflected an expectation that the Fed's aggressive interest rate cuts and a one-time tax rebate this summer would boost the economy.
``People are looking forward to their tax refund and they expect their personal finances to gain considerably,'' Nomura Securities International economist Carol Stone said.
``NON PROBLEM''
The Federal Reserve has cut interest rates six times this year to keep the shaky U.S. economy on solid ground. The U.S. central bank next meets to discuss interest rates on Aug. 21.
With inflation under wraps, the Fed will be free to cut rates again at its meeting next month, analysts said.
``At this time anyway, inflation remains a non problem,'' FleetBoston Financial chief economist Wayne Ayers said. ``That's good for the Fed if they feel they need to ease further.''
The Labor Department said prices paid to U.S. producers slid 0.4 percent in June after a slim 0.1 percent gain in May.
The drop in the latest month was led by falling energy prices and marked the biggest decline since a 0.5 percent decrease in February 1999. Stripping out the volatile food and energy components, the PPI edged up only 0.1 percent in the latest month following a 0.2 percent gain in May.
The PPI report showed that energy costs, which have soared this year, retreated by 2.5 percent in June after increasing 0.2 percent in May. That is good news for spending, as consumers who are paying less to fill up their cars with gasoline and to cool their homes have more money in their pockets when they hit the stores.>> |
